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TMI Blog2014 (5) TMI 958X X X X Extracts X X X X X X X X Extracts X X X X ..... and this margin should have been compared with the margin of external comparables which stood at 8.87% instead of the entity level margin 1.08% since entity sales consists of both contract manufacturing segment which meant for export done and local segment which is engaged in domestic sales - In the current year also i.e. assessment year 2008-09, the net cost plus margin of the assessee in contract manufacturing segment is 10.77% which is more than the net cost plus margin of 9.55% on the external comparables of the Transfer Pricing Officer and therefore there is no need for upward adjustment to be made on the AE sales of the assesse – the AO is directed to set aside the addition made towards upward adjustment of purchase price on determination of ALP with AE – Decided in favour of Assessee. Provision for discount – cessation of liability - Held that:- Following M/s. Honeywell Electrical Devices & Systems India Ltd. Versus The Assistant Commissioner of Income Tax [2014 (5) TMI 728 - ITAT CHENNAI] - when the liability is ascertained and not quantifiable during the year and is simply a contingent based on estimates, the same cannot be allowed as deduction - the assessee’s version ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the case and in law, the Transfer Pricing Officer and the Assessing Officer under the directions issued by Hon'ble Dispute Resolution Panel ('DRP'): 2. Erred in law and in facts by arbitrarily substituting the segmental analysis provided by the Appellant with an entity-wide aggregated approach to test the international transactions of the Appellant. 3 Erred in law and facts in adopting entity level approach without considering the functions of the appellant with regard to the manufacturing and distribution segments. Further, failed to follow the principle of consistency in not taking cognizance of the fact that segmented approach was accepted in AY 2005-06. 4 Erred in facts in making erroneous observation by placing reliance on the segmented financials of the previous year in rejecting the segmented accounts of the Appellant. 5 Erred in facts in ignoring the reason for difference in proportion of common expenses allocated between segments in rejecting the segmented accounts. 6 Erred in making adjustment on unrelated third party transactions of the Appellant instead of making adjustments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h sides. Perused the orders of lower authorities and the case law relied on. The reason given by the Transfer Pricing Officer and DRP for not accepting the segment results are that the assessee has not shown the same in the audited financial accounts and the segment reporting was done only for transfer pricing purposes. They have also stated that allocation of expenses between the contract manufacturing segment and non AE local/domestic segments are abnormal. In so far as the reason that the assessee has not shown the segmental report/results in audited financial accounts and therefore, such segmental results cannot be accepted for ALP has not been accepted by this Tribunal in the case of 3i Infotec Ltd. Vs. ITO in ITA No.21/Mds/2013 vide order dated 7.5.2013. This Tribunal in the above cited case held that even though segmental reports are not show in audited financial accounts, they have to be accepted. 18. This Tribunal further held, in view of the decision of the Delhi Bench of the Tribunal in the case of DCIT Vs. Stratex Net Works (India) Pvt.Ltd., (133 TTJ 365), that rate of profit achieved in other comparable cases are to be compared with profit level declared by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision/conclusion to reject the segmental results of the assessee is wrong. For example in the above extracted para from DRP order the employee cost was taken at 1.88 crores as against the correct figure of 2.10 crores. Similarly, other expenses and depreciation was taken at 0.59 crores and 18.50 crores as against the correct figures of Rs. 1.88 crores and 0.58 crores respectively. The Transfer Pricing Officer in his order at page 9 has taken the figures of material cost, employee cost and other expenses at Rs. 2.10 crores, ₹ 1.88 crores and Rs. 0.59 crores as against the correct figures of Rs. 1.39 crores, Rs. 2.10 crores and Rs. 1.88 crores respectively for analysis. The Transfer Pricing Officer and DRP have taken wrong figures in respect of these expenses in analyzing and rejecting the segmental results. The figures taken by the Transfer Pricing Officer / DRP in respect of material cost, employee cost, other expenses, depreciation are not matching with the figures given by the assessee in segmental results appearing at page 138 of the paper book submitted before us. Apparently, the Transfer Pricing Officer / DRP have adopted wrong figures and analyzed with these figur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Transfer Pricing Officer has accepted the segmental results in assessment year 2005-06 and 2006-07 on the contract manufacturing transactions with AE for arriving at ALP while computing relief under section 10B of the Act. The Transfer Pricing Officer / DRP has not given any valid reasons as to why segmental results shall not be considered for determining ALP of transactions with AE having accepted very same segmental results of the assessee for the purpose of computing deduction under section 10B of the Act. The Tribunal came to the conclusion that there is no valid reason for not accepting the segmental reports in determining ALP on the AE sales for the assessment year 2007-08. The Tribunal further observed that Transfer Pricing Officer/ DRP approach in comparing external comparables margin with entity level margin of the assessee is wrong since segmental results are available and as per the segmental results the margin in contract manufacturing segment was at 20.89% and this margin should have been compared with the margin of external comparables which stood at 8.87% instead of the entity level margin 1.08% since entity sales consists of both contract manufacturing segment w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actual discounts of Rs. 2,73,03,455/-passed on to the customers as deduction for the assessment year 2007-08 as was allowed in the assessment year 2009-10. 23. The Departmental Representative has no serious objection in directing the Assessing Officer to verify and allow the claim of the assessee in respect of actual discount passed on to the customers as deduction, as similar claim was allowed by the Assessing Officer in the assessment year 2009-10. 24. Heard both sides. Perused the orders of the lower authorities. As far as the claim of the assessee that provision for discount should be allowed as deduction is concerned, the issue is decided against the assessee by the co-ordinate Bench of this Tribunal in the assessee s own case for the assessment year 2005-06, wherein the Tribunal held as under:- 6. We have considered the rival submissions and have found that the assessee can claim such a provision only if it satisfies the following conditions: An enterprise has a present obligation as a result of a past event; It is probable that an outflow of resources will be required to settle the obligation; and A reliable estimate can be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n could not be undertaken for the various reasons. In our opinion, the basis for the provision is simply adhoc and arbitrary. It depends on the facts of each and every case to come to a conclusion as to whether the liability is ascertained or unascertained one and it cannot be generalised. The discounts given to meet out a particular target to the Channel Partners and further discounts given to the customers are not specifically specified and nobody knows as to what would be the exact position when transactions take place. There is no past history of this assessee. Therefore, in these circumstances, we are unable to accept the version of the assessee. We, therefore, set aside the findings of the ld. CIT(A) and reverse the same. The grounds raised by the Revenue, in this regard, are allowed. 25. The facts and circumstances being similar in the current assessment year also, respectfully following the said decision, we reject the ground of appeal of the assessee on this issue. However, in respect of the alternative claim of the assessee that deduction for discount actually passed on to the customers has to be allowed as deduction, we see that the Assessing Officer in similar circu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds of appeal of the assessee is with regard to exclusion of travelling expenses incurred in foreign currency from export turnover and included in total turnover for computing deduction under section 10A of the Act. Similar issue has been decided in assessee s own case for the assessment year 2005-06 by the co-ordinate Bench of this Tribunal in ITA No.1925/Mds/2010, wherein the Tribunal following the Special Bench decision of Chennai Bench in the case of Sak Soft Ltd. 313 ITR (Trib) 353(Chennai)(SB) held that such travel expenses incurred in foreign currency have to be excluded both from export turnover as well as from total turnover for the purpose of computing relief under section 10A of the Act. Respectfully following the decision of the Special Bench in the case of Sak Soft Ltd. (supra), we direct the Assessing Officer to exclude the travel expenses incurred in foreign exchange from export turnover as well as total turnover for the purpose of computing relief under section 10A of the Act. 15. Respectfully following the above order, we direct the Assessing Officer to exclude travelling expenses incurred for foreign exchange from export turnover as well as total turnover fo ..... 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